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Coronavirus lends a helping hand to glove stocks

21 Jan 2020 / 23:08 H.

PETALING JAYA: Glove stocks were among the top gainers on Bursa Malaysia today, as investors likely anticipate a surge in demand for gloves, following news of a coronavirus outbreak in China recently.

At the close of trading, Top Glove Corp Bhd was 6.02% higher at RM5.11 and 33.3 million shares done, with an intraday high of RM5.16.

Kossan Rubber Industries Bhd closed 5.67% higher at RM4.47 with 7.37 million shares done and Supermax Corp Bhd ended 10.69% higher at RM1.45 with 56.4 million shares done.

Hartalega Holdings Bhd rose 4.5% to RM5.80, with 14.6 million shares done.

In a research note, CGS CIMB Research said that according to their channel checks, glove makers under its coverage have yet to witness a surge in demand for gloves owing to the virus outbreak.

“We attribute this to the fact that this outbreak is very recent while China does not have high glove usage per capita due to lower healthcare awareness vs developed countries.

“In our view, glove makers will only see a sharp rise in global glove demand if this outbreak is prolonged and turns into a global pandemic. We witnessed this during the SARS outbreak in 2003 and avian flu in 2009. We estimate that global glove demand rose 12-16% in 2003 and 2009,” it said.

The research house also noted that since glove makers are already running at high average utilisation rates, any surge in demand for rubber gloves should lead to margin expansion for glove makers given their limited capacity.

“We believe that Supermax and Top Glove could be the biggest beneficiaries as both have excess capacity especially in the latex segment (due to more pricing pressure in this segment).

“In the long term, we believe that this virus outbreak will lead to higher healthcare awareness especially in emerging countries, and in turn boost glove demand,” it said.

CGS CIMB is maintaining its overweight call on the sector with its top picks being Top Glove and Kossan.

On Jan 12, the World Health Organisation confirmed an outbreak of novel coronavirus in Wuhan, China.

There are more than 200 confirmed coronoavirus cases, including four deaths reported thus far. This new coronavirus strain has already spread to other countries with two cases in Thailand, one in Japan and one in South Korea.

The virus causes a type of pneumonia and belongs to the same family of coronaviruses as SARS. Symptoms include fever and difficulty in breathing, which are similar to that of many other respiratory diseases.

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